Using IFEX ELFs to Hedge Major Non-US Wind Catastrophes

• IFEX Tropical Wind Event Linked Futures contracts can be used to hedge against any catastrophe that causes any major losses to the international reinsurance industry.
  
  
• A Protection Buyer would buy in 2010 an ELF for 2011 US Tropical Wind.
  
  
• If a major catastrophe, e.g. an earthquake in the United States, occured in 2010, the price of the 2011 ELF would increase substantially. The result is that the Protection Buyer receives significant Variation Margin towards offsetting increased renewal rates in 2011.
  
  
• In the absence of such a major catastrophe, the cost of the hedge is limited to the bid-offer spread, plus the relevant fees and commissions for trading.